BPR at 100% for assets in Deceadsed's sole name?

Trusts Discussion
1

I am dealing with an estate where there is a piece of land in the deceased’s (A’s) sole name. The land and property on it were used by the partnership which A had with her son (B).

It is pretty clear from partnership accounts that the land and property was regarded as belonging to the partnership. In fact, the premises built on it was paid for by the partnership.

There are also other pieces of land which are in B’s sole name, which are also regarded as part of the partnership.

HMRC are looking to apply 50% BPR because the land is in the deceased’s sole name. Are there any exceptions to this so that 100% BPR will apply?

Any guidance would be most welcome.

Kind regards.

Martyn Dixon
Harold Bell Infields & Co

2

By in the deceased’s name presumably means registered as proprietor at HMLR.

The register shows the legal title only. Where land is partnership property the legal titleholders are often different from the equitable (or for taxes “beneficial”) owners, not least where the latter are more than 4 in number.

HMRC’s positional starting point is that legal ownership is prima facie the same as beneficial. You need to adduce evidence that the partners jointly own it beneficially, as tenants in common in equity no doubt as it is an integral component of his interest in a business within s108 (1)(a) and not (d). Is there a written partnership agreement (possibly supplemented orally or by conduct)? Does it say what would happen to the asset on a dissolution following a death or retirement, particularly of A the legal owner? There are accounts and it is on the balance sheet; not in itself conclusive but if you can show it was acquired and is maintained with partnership funds. Again not conclusive but the parallel treatment in a similar fashion of

3

Dear Jack

Thank you for that, it is most helpful.

The land is, indeed, reflected on the partnership accounts.

I will explore the other avenues you have mentioned.

Kind regards.

Martyn Dixon

4

Sent incomplete by mistake, apologies.

After”fashion of “ continue:
“land in B’s sole name”.

Family partnerships tend to be very informal, even totally oral with the backup of PA 1890. Even so it is in general a rather barmy operation to build premises on land you don’t own.

Nevertheless such crazy acts, and others, happen in family partnerships quite often, as witness the proprietary estoppel case law. The cobbler’s children are the worst shod.

As HMRC are already responding a form IHT413 must have been submitted and box 7 etc not box 18 filled. Anything in box 25? IHTM25091 onwards are moderately informative, including referrals to Technical if not “straightforward “. You may have to kiss a few frogs before reaching a Prince.

I used to regard all non-perfunctory correspondence with HMRC as incipient litigation and mapped out skeleton legal arguments before drafting the final Pearls to be cast. A detailed resume of all the facts must precede to pre-empt obvious enquiries at glacial speed at geological intervals.

Jack Harper

5

s.20(1) and (2) PA 1890 may be pretty helpful in that all land “brought into” the partnership is held on trust for the persons beneficially interested.
I would have thought that years of including the land on the partnership balance sheet is pretty good evidence that the land has been “brought into” the partnership and therefore the legal owner holds it for the partnership/partners.

At the very least, that should put the onus back onto HMRC to show that the deceased was sole beneficial owner.

6

While ss 19 and 20 PA state what is to happen if certain facts exist, their existence will have to be proved, if challenged, in whatever procedural manner is dictated by how the challenge arises and from whom.

Here that is by HMRC in their IHT investigation of a submitted 400 and 413. Neither asks for submission of documents e.g. accounts. IHTM09023 and 09080 are noteworthy but vague.

We have not seen the correspondence. We do know that accounts exist but not exactly what they say. Critically as regards PA 1890 we do not know whether the acquisition cost of land itself was funded from the firm’s funds, though it seems that the building costs were. In such situations the A in question has often acquired the land (sometimes long ago) as sole trader or even as the last surviving partner of a different firm before B is admitted.

I suggest that if the original cost of such land is then reflected in the AB firm accounts it is good evidence that it has been “originally brought into” the firm per s19 (1) not later than the date of the first accounts to show it. The debit on the B/S should be matched by a credit to A’s capital account. So evincing that it has become partnership property and thus part of A’s “interest in a business” for s108(1) IHTA. Where no accounts exist underlying records may do equal service. In any given case there may better evidence of the issue like a written agreement, minutes of partners’ meetings, or side letter(s).

As I have said, expending firm’s funds gratuitously on property the partners do not own as partnership property is so legally ill-advised as to be presumptively corroborative of s19(1) applying, though not a slam dunk.

I would also observe that it may be unwise to gloss over unhelpful evidence but better tactically to finesse it by either disclosing it subtly without initial comment or frankly with robust dismissal of its relevance or cogency. This to head off any jeopardy under ss 239(4)(a) and 240(4)and(5).

As the Blob works in Silos, I doubt there is routine liaison with the firm’s income tax custodians at HMRC. They may only be vaguely aware of underlying assets, if at all. Their guidance is confusing. Don’t initially send in partnership accounts, say they, just keep them safe, unless the firm’s turnover is £15m or northwards. But, they add, you might in some cases want to do so “for a [meaning their own] proper understanding of the figures”! PRTG p7. If they already have accounts or asset details, e.g. from an earlier capital gain disclosure in a return or enquiry, you need to be forearmed with the details, which may require liaison with a separate tax agent.

Jack Harper